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Breaking the Momentum of the Job Cuts

Is healthcare and education spending the most reliable fiscal channel for creating jobs?

This morning’s employment report is horrific. Nonfarm payroll employment is down 651,000 in February, down almost 2 million in last three months. The unemployment rate is up to 8.1%. The unemployment rate for college graduates is up to 4.1%, I believe the highest on record.

The only piece of good news is that private healthcare and education employment is up 26,000 in February, 467,000 over past year. Employment in state and local education is up 16,000 in month, 54,000 over past year.

It now becomes clear that the floor for the labor market is going to come from healthcare and education—both with heavy government funding. These two sectors, plus government, employ about 41 million workers, which accounts for roughly 30% of the nonfarm workforce.

The question: Is this floor strong enough to break the downward momentum of the job cuts? Can hospitals and schools keep hiring, or will the economic collapse force them to start laying off workers as well?

As long as education and healthcare keep hiring, they are the most reliable fiscal channel for the government to put money into the economy and create jobs. Tax cuts may have an effect, but people are just as likely to save the money as spend it. Bailout programs for banks keep them afloat, but are unlikely to stimulate new lending as long as the economy is heading downwards.

It may be time to accept that there is a new policy lever which did not exist in the Great Depression—the health-education channel. ‘Entitlement’ is usually said with a sneer in Washington, but the fact that Medicare is an entitlement program and local education is a quasi-entitlement (through union contracts) means that the spending keeps flowing even during a downturn.

We should keep pumping money into health and education to ensure that this hiring continues. Especially in healthcare, it helps people of all education levels, and it provides a service that people want.

I can easily imagine health, education, and government employment rising to 35% or more of the labor market before this downturn is over. Under the circumstances, that’s not a bad thing. It does set the stage for a mammoth fiscal crisis 5 or 10 years in the future—but for now, we need all the jobs we can get.